I'm still grabbling to understand the markets! I also have no clue about derivitives...what exactly they are and how they tie in with gold.

Crow

-- Crow (suzan@monad.net), February 04, 2000

Answers

The cash market is, in fact, the market for physicals. There's futures market that establishes the price for commodities at a future delivery date. (Delivery date is just the date at which the physical product gets delivered to a user.)It's February, but there is currently trade taking (on paper) for goods that will be delivered next December, for instance. Prices for physical products (i.e.: gold, silver, oil, corn, wheat, etc.) have to be established for forward months so that people such as Pillsbury (who use wheat and other products) and farmers (who grow the stuff) can determine the price level at which products will be bought and sold in the future. Future prices are used to "hedge" future gains or losses. Over time, as we've seen in the oil market, prices of commodities can change. If you were an oil supplier and you hedged (bought March futures last summer) the oil you needed to supply in February, the futures would have helped you offset the effects of the recent increase in oil prices. You will still have to go to the physicals market and buy the oil, but the hedge in the futures would have allowed you to have the extra money to pay for the increase. In the futures market, no physical products are traded. In the cash market, it's only physical goods. When I say that energy products for nearby delivery are scarce, I mean that the pipeline (the flow of goods) for products that are needed right now, is empty. I don't understand your reference to gold. Gold is a commodity like anything else and is subject to its own set of delivery times and requirements like everything else.

-- (cashtradr@aol.com), February 04, 2000.

Cash price = spot = what you pay for delivery today = real time current price today.

Future prices trade at different prices based on many factors see:

porterwn@one.net), February 04, 2000.

BTW, just because the future price is lower than spot does in no way mean that is going to be the case when it comes time for delivery in the future.

If you wanted you could buy crude futures today in say June for less than spot price today. But by the time June (assuming you held your position and withstood the volatilty between then and now)comes you would have a profit if prices are higher than your purchase price or a loss if prices fell below your purchase price.

DONT DO THIS! The volatilty could wipe you out before the futures contract closes.

On the day the future contract closes the contract price equals that days spot price.

So selling at a premium to NYMEX means that the current price today is much higher than traders expect to pay tomorrow.

True or not - they pay their money and take their chances.

-- Bill P (porterwn@one.net), February 04, 2000.

Seriously link impaired today.

The chart link is: http://www.mrci.com/ohlc/ohlc-06.htm

Hotlink attempt again at: LINK

-- Bill P (porterwn@one.net), February 04, 2000.